Bleak prospects - XLM faces a fragile recovery opportunity

The surge of Stellar (XLM) quickly "faded" as the price fell more than 6% in the past week, wiping out short term momentum.

Although it has increased by 41% in three months, the trend indicates that the sellers are regaining control. Moreover, the hope for recovery at this moment depends on a fragile and quite unlikely factor.

EMA crossover signals warning – Bears strengthen their power

On the 4-hour chart, the price of XLM has now fallen below all four EMA lines – the exponential moving averages of 20, 50, 100, and 200 periods. Most notably, a death cross has just formed, where the EMA 50 ( orange) has fallen below the EMA 100 ( blue).

XLM price and price drop crossover | Source: TradingViewThe exponential moving average (EMA) places more emphasis on recent price data. When the short term EMA crosses below the long term EMA, it is considered a bearish signal, indicating that recent prices are falling faster than the long-term trend.

When short term moving averages like the EMA 50 fall below long term moving averages like the EMA 100, it is often seen as a momentum reversal, when buyers lose control and sellers begin to dominate. But that's not all.

The Bull-Bear Power indicator (BBP) on the same chart also shows a strong red signal, which means that the bears have completely taken control of the short term price structure.

So far, the price movement shows weakness. But that's only half the story.

Liquidation Chart: Shorts Dominate, but also the Only Hope

On Bitget, XLM has seen nearly 75.82 million USD in Short positions and nearly 20 million USD in Long orders liquidated in the past 7 days — indicating a strong downtrend in trader positions.

However, this is also a rare opportunity for the bulls. If the overall market recovers slightly, a short squeeze may occur: rising prices force short positions to close, creating a wave of forced buying, pushing the price of XLM up strongly.

Liquidation chart for XLM | Source: CoinglassA short squeeze occurs when too many traders bet on a price fall (opening short positions), but instead, the price rises, forcing them to rush to buy back. This panic buying suddenly drives the price higher.

Important milestones to monitor

XLM has recently broken the pennant pattern on the daily chart. The nearest support level is currently $0.40. If this level is lost, a bearish crossover and pressure from BBP could pull the price down to $0.36 in the upcoming trading sessions.

Technical analysis of XLM | Source: TradingViewHowever, if a short squeeze actually occurs and XLM regains the range of $0.42 to $0.44, the short-term bearish structure will be invalidated. This will reverse the short-term sentiment and may trigger strong buying.

However, until that happens, the bears still hold control of the market.

Vincent